Seatrade Maritime is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

New US and EU sanctions against Russia cast wider shadow over offshore sector

New US and EU sanctions against Russia cast wider shadow over offshore sector
New sanctions against Russia from the US and EU go much further than the previous restrictions on technology exports, and could spell serious trouble for joint venture projects between Western oil majors and their Russian counterparts.

The US added Gazprom, a massive supplier of European energy, to its sanctions list along with private Russian oil group Lukoil. Both companies join a list of entities denied access, directly or indirectly, to US technologies, services and expertise for arctic and deepwater offshore operations.

For its part the EU has added energy companies Rosneft, Gazprom Neft and Transneft to its sanctions list. Specifically prohibited is the provision of services associated with Russian shale projects, deepwater and arctic oil exploration and production from within EU nations or from EU vessels and aircraft.

The EU regulations also restrict the export of so-called "dual-use" items and related services, equipment that is considered to have both commercial and military applications. The 260 page document outlining the EU's definition of dual-use technologies specifically covers marine applications on the surface and subsea, from powertrain and transmission to tethered submarines and specific advanced materials. Mentions of further maritime technologies are scattered throughout the document, including communications and sensor technologies.

For the offshore market the fallout could be substantial. The EU rules exempt contracts signed before 12 September 2014, but the US has no such exemption, allowing 14 days for operations to be wound down.

US oil giant ExxonMobil and Rosneft have in place $500bn joint venture for drilling in the Russian Arctic. As lawyers study the letter of the law, many eyes will be on North Atlantic Drilling's West Alpha rig, on station in the Kara Sea and drilling under the joint venture.

Seadrill boss John Fredriksen has already attracted negative attention from US and EU regulators when Seadrill subsidiary North Atlantic Drilling signed six contracts totalling $4.25bn with Rosneft. The Norwegian's move was viewed by some as directly contradicting the intention of sanctions, the halting of Russian arctic oil exploration.

Rosneft and Gazprom Neft have further agreements in place with BP, Total, Shell, Statoil and ENI, all of which may be subject to sanctions that could see them draw to a halt.

The removal of Western drilling expertise and technology will have a profound impact on Russia's ability to access its offshore oil reserves, as will the simultaneous withdrawal of Western capital. Last month Rosneft asked for a $42bn loan as previous rounds of sanctions had affected its ability to raise money.

Western oil majors continued to bet big in Russia despite the mounting crisis in the Crimea, hoping that the energy and offshore sector would remain out of the regulators' crosshairs. Now the trigger has been pulled, the fallout could be spectacular.